Understanding Business Accounting For Dummies, 2nd Edition (20 page)

In short, fraud occurs in the business world. Most of these schemes require
cooking the books
- which means altering entries in the accounts to cover the fraud or simply not recording certain entries that should be recorded. If you saw an expense account called
bribes,
you would tend to be a little suspicious, but unethical bookkeepers and accountants are usually a tad cleverer than that. You can find several tips on uncovering and preventing fraud in ‘Managing the Bookkeeping and Accounting System' earlier in this chapter.

When the books have been cooked, the financial statements prepared from the accounts are distorted, incorrect, and probably misleading. Lenders, other creditors, and the owners who have capital invested in the business rely on the company's financial statements. Also, a business's managers and board of directors (the group of people who oversee a business enterprise) may be misled - assuming that they're not a party to the fraud, of course - and may also have liability to third-party creditors and investors for their failure to catch the fraud. Creditors and investors who end up suffering losses have legal grounds to sue the managers and directors (and perhaps the auditors who did not catch the fraud) for damages suffered.

The Sarbanes-Oxley Act, a new set of rules and regulations designed to ensure truthful accounting in companies listed on the American stock market, came into force in 2002. Chapter 1 gives you information about Sarbanes-Oxley.

Chapter 3
:
Taxes, Taxes, and More Taxes

In This Chapter

Paying taxes as an employer and a property owner

Putting on your tax collector hat and collecting value added tax (VAT)

Determining how much of business profit goes to the government

Allowing company tax methods to override good accounting methods

Looking at the different ways company tax works for different business structures

A
s an employer, a business pays taxes. As a property owner or occupier, a business pays taxes. As a seller of goods and services, a business collects value-added-taxes paid by customers and remits the amounts to the government's Customs and Excise Department. And, of course, a business, or its owners, must pay corporate income tax. Yikes! Is there no escaping the tax millstone?

Nope, afraid not (short of resorting to illegal activity or a sly move to another country - you'll have to find another book to tell you about those options). But you can take advantage of the many options in tax laws that can minimise how much you pay and delay your payment (a perfectly legal strategy known as
tax avoidance
). This chapter starts you on your way by explaining the various types of taxation that a business faces.

We say that this chapter ‘
starts
you on your way' because we can't possibly provide you with exhaustive detail in one chapter. And besides, no one can give you good tax advice without first looking at your specific situation - consult a professional tax expert for that.

Taxing Wages and Property

Even if you don't earn a profit in your business, you still have to pay certain taxes. Unlike corporation tax, which is a
contingent
or
conditional
tax that depends on whether a business earns taxable income for the year, the two major types of non-income taxes -
employer payroll taxes
and
business rates
- always have to be paid. (See ‘Taxing Your Bottom Line: Company Taxes,' later in this chapter, for more about income tax.)

Putting the government on the payroll: Employer taxes

In addition to deducting income tax from employees' wages and remitting those amounts to the proper government agencies, businesses need to pay National Insurance for all employees, yourself included. (Actually, National Insurance isn't really a tax, but we won't get technical.)

National Insurance

Most people don't realise that they usually pay less than half of their National Insurance bill - the employer picks up the rest of the tab. The idea is that the burden should be shared almost evenly, but with the employer generally picking up a little more of the tab.